Growing Inequality Demands Political Action

Global income and wealth inequality is reaching scandalous proportions, and apparently even more so in times of coronavirus. Oxfam recently revealed that the total fortune of the world's richest 10 men doubled during the pandemic, while 160 million women, men and children fell back into poverty. Another report shows that the annual income of the poorer half of the world's population is less than $4,000, while the richest ten percent earn an average of $122,000 and have assets of $771,000. Without a partial redistribution of wealth, investments into the future are not possible.

In late October 2021, World Food Programme (WFP) Director David Beasley challenged entrepreneur and Tesla owner Elon Musk via tweet to donate two percent of his wealth to solving the global hunger crisis. Musk responded promptly saying that if six billion would solve world hunger, he would “sell Tesla stock right now and do it.” Beasley backtracked, since the $8.5 billion that the WFP used in 2020 was not nearly enough to solve the hunger problem. However, he replied to Musk that he would be happy to show him how this money could improve the lives of millions of people.

The immeasurable wealth

The exchange may be entertaining, but it also makes one thing clear: the wealth gap is widening, and the wealth of the business elite is growing immeasurably. In the coronavirus year 2020 alone, it increased by an average of 30 percent compared to 2019. In March 2021, the business magazine Forbes published a global billionaires' list. On it, Elon Musk is listed with a fortune of over $151 billion. This put him in second place behind Amazon founder Jeff Bezos ($177 billion), but ahead of the French Arnault family, owners of luxury goods groups such as Christian Dior and Louis Vuitton ($150 billion), and the founders of Microsoft and Facebook, Bill Gates ($124 billion) and Mark Zuckerberg ($97 billion). By October 2021, when the tweet dispute took place, Musk's fortune had grown to more than $300 billion according to Bloomberg, propelling him into first place among the super-rich. That resulted in the six billion he mentioned in his tweet.

Worldwide, Forbes listed 2,755 billionaires by name: 41 percent in Asia, 30 percent in North America and just under a quarter in Europe. Their assets totaled $13.2 trillion, or 3.5 percent of total global household wealth. This stood at $418.3 trillion at the end of 2020. The Forbes list also includes 40 billionaire families from Switzerland. They own between $10.7 billion and $1.4 billion and thus occupy Forbes ranks between 208 and 2,121. Their total wealth amounts to $145.5 billion.

Global wealth and income inequality

However, the Forbes list only shows the tip of the iceberg. The World Inequality Lab research institute leaves no doubt about that. According to the "World Inequality Report 2022" (W.I.R.), published in December 2021, there are a staggering 62 million millionaires worldwide with a total wealth of $174 trillion. In other words, just under one percent of the world's population owns more than 40 percent of global household wealth. Half live in North America (29 million), a quarter in Europe (26), a fifth in East Asia (13) and the remaining six million in the rest of Asia, Latin America and Africa.

The global average wealth is $102,600 per capita. The richest 10 percent of the world's population own an average of $771,000, or three-quarters of the global total. The poorer half shares just two percent of this wealth, or an average of $2,900 per person.

Income inequality is also high. On average, an adult person worldwide earned $23,380 in 2021, adjusted for purchasing power. The richest 10 percent of the world's population received more than half of the global income—an average of $122,000 per capita. The poorer half, on the other hand, received just $3,920 per capita, equivalent to only 8.5 percent of global income. But such averages give a distorted picture: According to the United Nations (UN), more than 700 million people still live below the poverty line of $1.90, and the trend is rising because of coronavirus. They can only dream of an annual income of $3,920.

In order to fully grasp the situation, a differentiated picture of income and wealth between and within individual world regions and states is needed. Since this cannot be done here in view of the complexity and often lack of transparency of the data, we refer to the extensive data material and charts in the W.I.R.

Rising inequality in the pandemic

Anyone who thinks that globalization since the 1970s has reduced income inequality is proven wrong by the World Inequality Lab. It has remained the same over the past 100 years: In 2020, the average income of the top 10 percent of the world's population was 38 times higher than that of the bottom 50 percent, almost the same as in 1910, when the factor was 41. The gap was widest in 1980, when inequality was a factor of 53. Sustainable improvement, as promised by globalization, looks different.

In the last two years, the coronavirus pandemic has led to an economic crisis in many places, albeit with great regional variations. National income fell in Europe and Latin America, for example, while it recovered in East Asia in particular, rising by 8.5 percent in 2021. Although data on the impact of the pandemic on inequality within countries is still preliminary, the W.I.R. notes, among other things, that the wealth of the top 0.001 percent of the world's population increased by 14 percent between 2019 and 2021, while average global wealth increased by only one percent. At the top, however, among billionaires, wealth increased by more than 50 percent.

In developing countries, which have limited social protection systems, the impact of the pandemic on low-income populations has been extremely severe. Current estimates from the World Bank and the World Health Organization show that the pandemic threatens to drive more than half a billion people back into extreme poverty—"the worst economic disaster since the 1930s." W.I.R. lead author Lucas Chancel warns, "In rich countries, government intervention prevented a massive rise in poverty, this was not the case in poor countries. This shows the importance of social states in the fight against poverty." Olivier de Schutter, UN Special Rapporteur on Extreme Poverty and Human Rights, used the same line in his June 2021 call for the creation of a Global Social Security Fund to address the social impact of the pandemic.

Inequality is always a political choice

The rise of modern welfare states in the 20th century was based in part on steeply rising progressive tax rates. The enormous progress in health, education and opportunities for all that this created ensured the social and political acceptance of this increased taxation and socialization of wealth. A similar evolution—a significant redistribution of income and wealth—is now needed to meet today's challenges.

But this requires political will. The gap between government and private net wealth has grown steadily; while private wealth has increased, governments have become poorer. Corporate taxation has been declining steadily since the 1980s, and multinational corporations—and their shareholders—are raking in the profits of globalization. Yet, given the large concentration of wealth, even moderate progressive taxes could generate substantial revenues for long-needed investments into the future.

Recent developments in international taxation show that progress at the global level and within countries is possible. But a critical look, for example at the new international minimum tax for multinational corporations agreed by the OECD and G20 in October 2021, makes clear that the road ahead is still long and rocky. In addition, many super-rich people are still keen to pay as little tax as possible. Policymakers must ensure that the rich pay their fair share of taxes.

The fact that global income and wealth inequality continues to rise, especially in the coronavirus pandemic, forcing hundreds of millions into extreme poverty, is an international scandal. And it is man-made: "Inequality is always a political choice," is Lucas Chancel’s main finding in the World Inequality Report 2022.